Review

• Reporting an FY24 net profit of RM4,196mn, HLBB’s results came within expectations, with net profit accounting for 102% of our FY24 net profit forecast. Translating to a 9.9% YoY increase, the stronger set of results was underpinned mainly by a net writeback in allowances, along with more robust contributions from associates (+23.2% YoY). ROE stood at 11.8%, almost meeting HLBB’s guidance of around 12% for FY24.

• The board has declared a higher final dividend of 43 sen per share, bringing the total dividend to 68 sen per share for FY24 and translating to a payout of 34%.

• Including Islamic Banking operations, FY24 net interest income (NII) expanded by 2.6% YoY to RM4,669mn compared to RM4,552mn a year ago. The NIM declined by 12 bps YoY to 1.86% from 1.98% in FY23. QoQ, NIM continued to improve slightly to 1.89% from 1.87% in 3QFY24, which was attributed to effective funding cost management as well as an expansion in the loan portfolio.

• Total loans and advances accelerated 7.3% YoY. Retail loans rose at a stronger pace of 7.3% YoY, led by advances for Residential Properties (+6.3% YoY), Transport Vehicles (+12.1% YoY) and Unsecured Lending (+7.5% YoY). Business and Corporate broadened at a healthy pace of 8.7% YoY. SME loans advanced by 13.6% YoY, of which community SME banking ballooned by 13.9% YoY. Loan growth in overseas operations expanded at a softer pace of 0.3% YoY (3QFY24: +5.3% YoY), underpinned by Singapore (+2.7% YoY) and Vietnam (+8.8% YoY). International operations accounted for around 6% of HLBB’s total loan portfolio.

• Total deposits advanced by 4.1% YoY. Deposits from Individuals and Business Enterprises increased by 7.0% and 2.9% YoY. By type, CASA deposits grew 10.0% YoY, thanks to community acquisition initiatives and effective cash management solutions. CASA accounts for around 32.5% of total deposits. FDs rose by 2.6% YoY. Elsewhere, HLBB’s liquidity position remained robust, with the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 127% and 118%, respectively.

• Including Islamic Banking operations, the FY24 non-interest income (nonNII) declined by around 2.8% YoY. The softer YoY performance was underpinned by lower trading, investment & forex income, which declined by 40.2% YoY to RM250mn. On a positive note, fee income was higher at RM680mn in FY24 vs RM599mn in FY23. YoY, Credit card-related fees and Wealth management & Bancassurance income broadened at a stronger 10.5% and 40.4% YoY, respectively. Fee income was also driven by GM franchise sales, which gained traction and accelerated by 28.7% YoY.

• Operating expenses grew at a modest pace of 4.7% to RM2,339mn from RM2,233mn in FY23, mostly due to higher personnel costs. On the back of negative JAWs, HLBB’s cost-to-income (CTI) ratio broadened to 40.5% vs 39.3% a year ago.

• FY24 net credit cost stood at -6 bps, better than management’s FY24 target of around 10 bps, due to a net writeback in allowances amounting to RM113mn from an impairment of RM115mn in FY23. Headline asset quality remains solid with the total gross impaired loans little changed at RM1,074mn (FY23: RM1,042mn). The gross impaired loans ratio (GIL) was also stable at around 0.53% (FY23: 0.57%). The GIL ratio for domestic operations improved by 6 bps YoY to 0.53%, while the GIL ratio for overseas operations rose by 13 bps YoY to 0.56%. By major segments, the GIL for transport vehicles weakened by 13 bps YoY to 0.35%. Meanwhile, the GIL ratio for residential properties and SMEs improved by 4 and 2 bps YoY to 0.41% and 1.04%, respectively. Other asset quality indicators, such as loan loss coverage, remained healthy at 155% (FY23: 169%).

• The capital position remained healthy with a CET1 and Total Capital Ratio of 13.3% and 16.3%.

Impact

• Incorporating FY24 results, we adjust HLBB’s FY25 and FY26 net profit forecasts to RM4,505.9mn and RM4,857.0mn. We project a stronger earnings growth of 8.1% YoY to RM5,250.6mn in FY27.

Outlook

• HLBB met all its FY24 management targets, showcasing resilient business performance driven by robust loan and financing growth, a more stable sequential NIM, disciplined cost management, solid asset quality, and increased contributions from BOCD. With this strong foundation, we believe HLBB is poised for another year of healthy earnings growth in FY25.

• For FY25, management is guiding towards 1) loan growth in the range of 6-7%, slightly down from 7.3% in FY24, 2) an improved NIM of 1.85% to 1.95%, 3) tight expense control with a cost-to-income (CTI) ratio maintained below 41%, 4) resilient asset quality, with a gross impaired loans (GIL) ratio targeted at below 0.65%, and net credit cost expected to remain under 10 basis points (bps). Consequently, HLBB anticipates a modest improvement in return on equity (ROE) to around 12%, up from 11.8% in FY24. We find management's targets to be reasonable and aligned with our projections. Our forecast for FY25 anticipates an ROE of 12%, consistent with the guidance provided by management.

Valuation

• We updated the beta and lowered our market risk premium from 6% to 5.5% for the banking sector on the back of the improving economic environment in Malaysia, the banking system’s healthy asset quality and capital ratios, stable interest rate environment and more positive investor sentiments. With that, we raise HLBB’s TP from RM22.66 to RM23.90. Our valuation is based on an implied PBV of c. 1.33x based on the Gordon Growth Model and a 3% ESG premium. Buy maintained on HLBB.

Source: TA Research - 30 Aug 2024